Money Demand Curve Shifts - Key Concept

What causes the money demand curve to shift? Income causes the money demand curve to shift. People with higher income need more money so that they can buy more things. If one's income increases, that person will hold more money so that they can buy more things. If their income falls, people hold less money. People's future expectations also affect how much money they hold. If a person is worried that they will lose their job, that person might actually reduce their money holdings and, instead, save that money. This is called precautionary savings. People spend less and save more to off-set income decreases in the future. If a person feels confident in their future income, they may increase their current money holdings.